The European Central Bank cut its deposit rate below zero, making the institution the world’s first major central bank to use a negative rate.

In an historic bid to fight deflation, European Central Bank president Mario Draghi reduced the deposit rate to minus 0.10 per cent from zero, making the institution the world’s first major central bank to use a negative rate.

The European Central Bank is pulling out all the stops — and set one of its key interest rates in negative territory for the first time — as it tries to kick start the world’s second-largest economy.

The ECB unveiled lower rates and billions in cheap loans for banks to companies, among other measures, on Thursday. All are aimed at boosting lending and growth in the 18-country eurozone.

The central bank and its policy makers are trying to prevent the region from slipping into deflation, a downward spiral of falling prices that has gripped Japan for two decades.

The long-anticipated announcement was met with euphoria that faded quickly. European stocks rallied, with Germany’s DAX blue-chip index breaking 10,000 points for the first time before falling back. The euro currency tumbled, then recovered as economists and analysts wondered if more will have to be done to support the economy.

ECB president Mario Draghi vowed that European policy makers are united in their efforts, and will do more if needed.

“We think it’s a significant package,” he told reporters at a press conference in Frankfurt. “Are we finished? The answer is no. we aren’t finished here. If need be, within our mandate, we aren’t finished here.”

Though the ECB doesn’t expressly say so, it wants to see a decline in the euro.

“A lower euro is positive for European competitiveness and should be good for the economy. That should, in turn, put upward pressure on inflation,” said Andrew Labelle, economist at TD Economics.

“The question right now is, ‘Is it enough?’ We will see.”

Though a weaker euro technically creates competition for Canadian exporters, a restored European economy is ultimately more important.

“Their efforts to weaken the currency may not seem beneficial for Canada but what we need here is a stronger euro zone economy,” said

Europe has not shaken off the sovereign debt crisis that gripped it through early 2010-11. Though lower interest rates have made carrying the burden more manageable for countries such as Greece and Italy, debt levels are still elevated.

The region’s economy, still hurting from the global financial crisis, was weighed down by worries that the end was in sight for the common currency, if not the entire union.

Adding to that burden, governments embraced austerity as they tried to slay their deficits and banks have been reluctant to lend.

Draghi and other policy makers have used interest rate cuts and bond buying programs to get the economy moving but those measures fell short – it shrank by 0.4 per cent in 2013.

The first quarter has been disappointing and uneven. While Germany’s economy is firing on all cylinders, France stalled, and the Netherlands slipped into negative territory.

While the EU’s overall unemployment rate fell to 11.7 per cent in April, the jobless rate is twice that level in Greece and Spain.

Adding to the region’s woes, the euro has been rising, up more than 10 per cent since mid-2012 while inflation touched a tepid 0.5 per cent in May. That’s the lowest rate in four yeas and far below the ECB target of 2 per cent.

The ECB reduced the deposit rate to minus 0.1 per cent from zero, meaning that banks would have to pay to stash their funds in the central bank’s vaults overnight. The hope is that banks will lend it out instead.

“It’s uncharted territory for the ECB,” Grantham said.

Policy makers also lowered the benchmark rate to 0.15 per cent from 0.25 per cent.

Among the other measures, Draghi said the central bank would:

Offer four-year loans to banks at cheap, fixed rates that will not increase, even if the ECB hikes its benchmark. The amounts the banks can borrow will be tied to the amounts they lend to companies.

Embark on “preparatory work” on a program to buy batches of loans to small businesses in the form of bonds. This measure would funnel more credit to companies through financial markets.

Stop collecting weekly deposits aimed at offsetting the monetary effects of earlier bond purchases. This measure would leave an additional 175 billion euros in the financial system that banks could use to lend to each other or to other companies.

Pressed by reporters, Draghi refused to rule out quantitative easing: buying large amounts of financial assets such as bonds to pump newly created money into the financial system. Central bankers in the U.S., and the U.K. used this drastic measure to pull their countries through the Great Recession.

The ECB is widely expected to hold off because of the complicated legal and political issues that would arise from making such asset purchases in a currency union with 18 different members.

TD Economics expects the EU’s economy to expand by 1.2 per cent this year and 1.9 per cent in 2015.

“We are expecting improvement, but growth will still be relatively weak this year,” Labelle said.

With files from Star wire services

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